Edelweiss upgrades Maruti Suzuki to ‘buy’, cites 4 key reasons

Securities has upgraded the stock of to a buy and has suggested a 1 year price target of Rs 10,685, signaling an upside of over 22%.

Maruti Suzuki is the country’s leading passenger vehicle (PV) manufacturer with a market share of about 45%. It is a key player in the mini and compact cars segment with a dominant market share and has enjoyed success in the executive segment on the back of the Ciaz and Brezza launches. Suzuki Motor Corporation (Suzuki) of Japan holds a 56% stake in the company.

The brokerage is bullish on the auto major in the wake of its interaction with the management and factors in currency, new product cycle tailwind, lower competitive intensity (launches) and operating leverage. “Accordingly, we are raising FY22E/FY23E EPS by 5%/11%,” said the brokerage report.

Primarily the brokerage has cited 4 key reasons as its rationale for investment in Maruti Suzuki

1. Demand outlook remains healthy with an order backlog of ~400k
2. Currency and commodity tailwinds should show up in FY23
3. Within the Utility Vehicles or UV segment, the company has spotted four buckets of consumers with further sub-segmentation and is looking to address most of them
4. BEV launch is likely in 2025; till then, the focus is on hybrids

Grand Vitara’s potential success is another trigger given the unique positioning of the product, said the brokerage report.

“We are upgrading the stock to buy/SO (from hold) with a revised TP of Rs 10,685 (earlier Rs 8,964) while rolling over the valuation to Mar 24E. We value MSIL at 33x core earnings plus cash per share of Rs 1,994,” added the brokerage.

The key risks, however, may be caused by a general slowdown in demand as well as the sustained pressure on compact cars.

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